Protecting Contractors Subject to Chief Engineer Decision Clauses

This article was published in the January 2018 issue of AGC Law in Brief (Volume 4, Issue 1), Practical Construction Law & Risk Issues. It is reprinted here with permission.

Most contractors have encountered a prime contract provision with a governmental agency or public authority owner where the contract states that all claims for extra costs, delay damages or the like must be presented to the owner’s Chief Engineer for a decision, and that the Chief Engineer’s decision shall be conclusive, final and binding on the parties. This is a much different animal than a clause that merely requires presentation of all claims to the Chief Engineer as a prerequisite to filing a lawsuit. Under the first type of clause, the Chief Engineer becomes the sole judge and jury for the claim, and his or her decision can only be modified or reversed by the courts if the decision was based on fraud, bad faith or mistake about a fact over which no rational person could possibly disagree (such as a mathematical calculation). The right to appeal from a Chief Engineer’s decision under one of these clauses is therefore very limited.

The authors have encountered circumstances when contractors have felt that being bound by such a “Chief Engineer decision” clause is not a bad thing. The Chief Engineer for a particular agency or authority may have a well-earned reputation for dealing with contractors and their claims in an open-minded, fair and neutral manner. Other contractors are skeptical about the chances of getting a fair decision from a person who is the head of the very same organization that is being “sued” for a large amount of money, especially when the claim may involve criticism of project personnel who interact with the Chief Engineer at the office every day. This article will briefly explore key points to keep in mind for the contractor who may have doubts about having its claim decided by the Chief Engineer in the unwelcome event that a claim has to be made.

The first point to keep in mind is that the enforceability of Chief Engineer decision clauses varies from state to state. The courts of some states hold that these clauses are enforceable, and that their judges should not interfere with dispute resolution clauses that are voluntarily signed.1 The courts of other states disfavor these clauses as contracts of adhesion, and prohibit them on the assumption that the relationship between a Chief Engineer and his or her agency is just “too close” to ensure an impartial decision on a claim against the agency.2

Sometimes, Chief Engineer decision clauses will appear in contracts with bi-state agencies that are, by nature, congressional “compacts” between the governments of two states. It is quite possible that the courts of one of those states would enforce such clauses, while the courts of the other state would prohibit them. In such a situation, the contractor’s attorney should evaluate which state’s law should govern the contract, an evaluation that takes into account factors such as the location of the project, where the contract was signed, and where the important witnesses are likely to live.

Assuming that the Chief Engineer decision clause in a given contract is enforceable in the state whose law controls the contract, and that the Chief Engineer will therefore have the final, binding and conclusive say over how a claim gets decided, the contractor and its attorney should be proactive in suggesting — or demanding — that appropriate procedures are in place to ensure as fair a hearing as possible. Counsel should work cooperatively with the “claim officer” or other agency representative responsible for the administration of the hearings to ensure that there will be a right to inspect the agency’s project records and possibly take the depositions of key witnesses as a means of discovery before the hearings start. The hearings themselves should give the contractor a full and fair opportunity to cross-examine the owner’s witnesses and present rebuttal testimony after the owner has presented its defenses. Counsel should also request that the claim officer implement appropriate procedures to ensure that the Chief Engineer does not have any “off the record” communications about the claim with the agency employees or consultants involved in defending it.

Ultimately, and as the U.S. Supreme Court made clear in a case decided a half century ago, the hearing procedures must be “conducted in such a way as to require each party to present openly its side of the controversy and afford an opportunity of rebuttal.”3 Hearing procedures that do not meet this minimum standard of fairness and due process may expose the Chief Engineer’s decision to reversal by a reviewing court, even in states where Chief Engineer decision clauses are enforceable. Most agency claim officers are keenly aware of these standards and understand that it would be in the best interests of all parties to have a hearing process that incorporates procedural safeguards like those discussed above. Counsel for the contractor should proactively work with the claims officer to ensure such a process is formally established in writing before any hearings begin.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

"My best business intelligence, in one easy email…"

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Privacy Policy (Updated: October 8, 2015):

hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.